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The Telecommunications Act if 1996 (Act) opened up the 100 billion dollar a year local telecommunications market. Now, almost any company that wants to offer local telecommunications services has the freedom to do so. This has created a flood of new startups entering this market. Startups are not the only ones becoming CLECs, Internet Service Providers (ISPs) in record numbers to reduce their cost, expand markets, and offer new services.

In this document we will attempt to cover the major steps in becoming a CLEC. There are many things that are out of the scope of this document. Before becoming a CLEC it is recommended that you have a good telecom lawyer and a telecom technical consultant.

Facilities Based or Resale

One of the first things that needs to be decided is whether the CLEC should be facilities-based, resale, or a combination of the two. As a resale CLEC, an expensive network build-out is not required because essentially the ILEC is providing the entire infrastructure. As a reseller the CLEC simply receives a discount of about 10 - 15% off the ILEC's retail service pricing. This leaves very small margins for the CLEC to operate. In fact, many resale-only CLECs have gone out of business recently.

On the other hand, a facilities-based CLEC allows the CLEC to reach much better margins because the CLEC and the ILEC are peer networks — this allows them to exchange traffic at little or now cost. Some CLECs that are facilities based also use resale to expand into remote markets and build a customer base before they decide to enter as facilities based. This strategy has some major downsides when it is time to roll the customers onto the CLEC's network.

Certification

A CLEC must be certified by the states where the CLEC plans to offer services. The rules in each state very somewhat, but the basic steps are the same. First needs to create the legal entity that will be the CLEC, if one has an existing ISP one may be tempted to just get it certified as a CLEC, but it is normally best to setup a separate corporation for the CLEC side. After one has the CLEC Corporation one can file to be a CLEC in the states where one plans to offer service. Each state will provide the necessary forms and it is normally best to have a legal firm specializing in CLECs to do the work. Depending on the state one may need to prove financial and technical qualifications and some states may even require a bond and a copy of the business plan.

The state may then require a public hearing where people in the community can try to challenge you becoming a CLEC. This is normally not a problem, but the CLEC should be prepared to answer any questions that the public may have. Once the CLEC is certified, it needs to file a tariff. A tariff is like a contract between the public and the CLEC and has terms and prices of services.

Interconnection Negotiating

The first major project in becoming a CLEC is negotiation of an interconnection agreement. Normally the negotiation process is started when the CLEC's lawyer sends a letter to the ILEC seeking interconnection. This is often referred to as the "start the clock letter" because when that letter is received it starts the 135-day period that the CLEC and ILEC have to negotiate. After the 135th day, if an agreement is not reached, an arbitration period begins.

The number of CLECs across the United States is growing rapidly, in fact in some states dozens of interconnection agreements have been negotiated. Under the Act a new CLEC has the right to opt-into any agreement that has been negotiated and is still in effect. This can save a new entrant hundreds of thousands of dollars. The CLECs technical consultant will review all the major agreements in the states where the CLEC plans to offer services and find one that best matches the CLEC's business plan. If there is an existing agreement that will work for the CLEC, the CLEC may opt-into that agreement and move on to the next step. Many times, it is necessary to negotiate a few sections; this does not mean that the CLEC needs to start from scratch. An agreement can be used as a base line to start negotiation, and then the CLEC will only need to negotiate the sections that need additional work. The Act also allows CLECs to opt-into section by section. A CLEC may use say AT&T as a base agreement and adopt the MCI UNE section.

Logical Interconnection

A CLEC must determine if it requires one-way or two-way trunking. One-way trunks were the first methods in which switches were used to exchange traffic. On a one-way trunk, calls can only travel one way. For calls to move in both directions two one-way trunk groups would need to be established between the two switches.

One-way Trunking

If the traffic flowing between the two switches is mostly two-way, one-way trunk groups can be very inefficient. For example, if one has 8 T1 one-way trunks between switch A and B, the total T1 configuration is able to switch and terminate 96 calls to each other. If the call volume jumps and more then 96 trunks are needed, the call will get blocked (busy) even if there are only 60 calls moving in the other direction. To account for this trunk groups had to be over provisioned so that they still could maintain a low blocking ratio.

Two-way Trunking

Two-way trunks groups solve this problem because calls can travel in either direction on the trunk groups. This configuration can drastically lower the number of switch ports required.

A CLEC needs to determine what the traffic flow will be between the CLEC and the ILEC switch because it can have a huge effect on trunking costs. When one-way trunks are used each party pays for the trunks necessary to terminate its traffic on the other party's network, while the cost for two-way trunks groups are shared between the two parties. If the CLEC's primary business were supplying ISPs access, most of its traffic would be from the ILEC to the CLEC. It would make sense for the CLEC to then use one-way trunking because the ILEC would bare all the cost to terminate its traffic on the CLECs network. If however the CLEC is going after business or residential traffic, it may want to use two-way trunk groups and share the cost with the ILCE, thus lowering the number of switch ports.

Physical Interconnection

There are several ways to physically interconnect two networks. The three basic methods are; end-point fiber meet, mid-span fiber meet, and leased facilities.

First we will talk about an end-point meet — perhaps the most common method of physical interconnection. Under an end-point interconnection, the CLEC will build fiber from its data center to the ILEC CO and the ILEC will build fiber from its CO to the CLEC's data center. Each party will install a MUX on its side of the link and provide a MUX to the other party for the opposite side.

End-Point Fiber Meet

Once an end point meet is established the parties may use it for local traffic interconnection or for access to unbundled network elements (UNEs).

Mid-span fiber meet is an interconnection in which each party builds fiber to one common mid point. The fiber is then spliced together and each party installs a MUX on it's own end. The advantage of a mid-span fiber meet is that the CLEC only need to come up with one MUX and the fiber build is shorter. In fact many ILECs will just build the fiber to the CLEC's data center instead of going through the hassle of splicing the fiber.

Mid-span Fiber Meet

The downside of a min-span fiber meet is that they only can be used for interconnection because the facilities are shared. If the CLEC needs a T1 to an end customer it cannot order it as a UNE over a mid-span fiber meet. As a result of this restriction many CLECs opt for an end-point fiber meet or start with leased facilities and then later expand to an end-point fiber meet.

The third common method of physical interconnection is leased facilities. In such an arrangement the ILEC would most likely build an end-point fiber meet to the CLEC for the purpose of terminating its traffic on the CLECs network. The CLEC then could lease facilities back to the ILEC over this end-point fiber meet as standard UNEs. The CLEC also could use a third party to get its traffic back to the ILEC.

Trunk groups

There are many different trunks groups that are used between two networks. Some of the trunk groups may not be required in all areas. Many ISPs that become CLECs try to get away with only local trunk group, but later find that there are several other trunks groups that are required.

Network

Local

The largest trunk group for many CLECs is the local trunk group; its purpose is the exchange of local traffic between two networks. Some ILECs have interesting ideas as to what local traffic is, many of them are trying to say that ISP traffic, or traffic that is transported over a tandem, is not local traffic. Local traffic can be defined as traffic that is originated from and terminated to the same calling scope. Local trunk groups can be provisioned as one-way or two-way trunk groups.

Inter/Intra LATA

Inter/Intra LATA trunks are used to exchange long distance traffic. These trunk groups are normally provisioned as one-way trunk groups. If a CLEC does not plan to offer any long distance it may be able to avoid Inter/Intra LATA trunk groups, but many ILECs will try to require them.

E911

Most states require E911 support for all facilities-based CLECs. The "E" in E911 stands for "Enhanced." This coded traffic passes important calling information, such as name and address, to the 911 offices to assist them in dealing with emergencies. Many ISPs that are becoming CLECs see no need for 911; after all, they are only connecting modems and modems don't make a lot of 911 calls. E911 trunks are normally provisioned as one-way trunk groups. In major cities the ILEC will have 911 tandems that connect to all of the Public Safety Answering Points (PSAP). This can greatly simplify 911 interconnection. If a 911 tandem is not available, then the CLEC must connect to each of the PSAPs.

Choke/Mass Calling

In many metropolitan areas the ILEC will have a choke or mass-calling network. This prevents the public switched telephone network (PSTN) from melting down when the local radio station offers free concert tickets to the next 10 callers. Choke trunks are provisioned as MF signaling, one-way trunks.

BLV/BLVI

What if there was an emergency but the call could not be completed because the line was busy? In most areas all the caller needs to do is call the operator and ask them to break into the call. This is done via busy line verification/busy line verification interrupt (BLV/BLVI) trunks. Again, if an ISP is becoming a CLEC this may not be required and in many cases can be avoided.

OS/DS

Operator Service/Directory Service (OS/DS) like the name sounds are used to reach the ILECs operator services/directory services. Many CLECs find that they don't have the volume to justify their own operators and use the ILEC's facilities. OS/DS trunks are provisioned as one-way and would not be required if the CLEC does not require OS/DS.

SS7 Links

Signaling System 7 is an out-of-band signaling network that is used for call setup and tear down, as well as for providing enhanced services. In the past, when a switch has to connect to a remote user, it had to setup a call through every switch in the network until it reached the switch that provided services to the end user. If that line was busy, the connection would be dropped and a busy signal would be generated to the calling party. This process was very inefficient. First, ports are used on trunks to setup calls that may never actually be connected. Second, the time it takes to go from switch to switch can be lengthy. SS7 solves this problem, buy running signaling links called A-Links and an SS7 router (STP) a switch can determine of an end line is busy without going through a series of switches.

SS7 also allows for the Advanced Intelligent Network (AIN), 800 database access, local number portability (LNP) and much more. Each SS7 signaling link operating at 56K can carry (56,000/8) 7,000 octets per second. At 40% occupancy (0.4 erlangs) the signaling link can be expected to carry up to 2,800 octets per second in each direction. To get to the number of voice lines that can be serviced over a single link set you need to take 2,800 and divide it by the number of octets transmitted per call. Industry averages for percentage of calls utilizing SS7 gives us a number of about 9,600 access lines per link set.

Tandem/End Office Interconnection

There are two major points where telecommunications networks interconnect: the end office (EO) or at the tandem. The EO is a switch that servers a local community. The switch has a line side that connects to individual phone lines and a trunk side that connects to other phone switches. EOs tend to have a service area of about 3 miles, so a major metro area can have dozens of EOs. When a CLEC connects to an EO, the CLEC can terminate traffic to or originate traffic from anyone in that central office. If a CLEC were to only do an EO interconnection, it would need to connect to every single EO in that metro area.

Tandems, however, connect many EOs together to form a more hierarchical network. When a CLEC connects to a tandem, it can originate/terminate calls from any EO that is connected to or subtends that tandem. Many interconnection agreements say that if there is more then 1 DS1 worth of traffic terminating to a EO subtending the tandem during the busy hour that the CLEC must build direct EO trunking to that EO. Because of this many CLECs use a combination of tandem and EO trunking.

Colocation

One of the most valuable places to be is in an ILEC's central office. From this position the CLEC has access to copper plant via UNEs. In the past CLECs that wanted colocation space in a CO were giving a 10- by 10-foot cage, if the CO had space. The ILECs were denying space to CLECs at staggering numbers saying that there was no space. Today the ILECs are forced to provide CLECs shared cage and careless colocation. If the ILECs say they don't have space, the ILEC must permit the CLEC a tour of the entire central office. The ILEC must provide a list of all offices in which there is no more space. ILECs must also remove obsolete, unused equipment in order to facilitate the creation of additional collocation space within a central office.

The type of equipment that can be put in a CO is still limited. Although ILECs may not require CLEC's equipment to meet the more-stringent safety requirements than the ILEC imposes on its own equipment, many times the CLEC equipment still must be certified NEBS compliant, something only the most select equipment meets.

Many CLECs have been looking at alternatives to physical colocation in an ILEC's central office. This is mostly because of the cost associated with a CLEC gaining access to the CO and the limitations put on them. One popular method is for the CLEC to place its equipment in a building next to the CO or build an equipment shelter next to the CO. The CLEC then builds a copper cable to the ILEC's CO and hands it to ILEC to punch down to a frame in the CO. Then the CLEC orders UNE loops like it would as if it was physically colocated. The loop would be run from the ILEC's MDF to the CLEC's copper frame. This method of access is still not looked at fondly by the ILECs, but is technically feasible.

Reciprocal Compensation

When a local call is placed inside an ILEC's network, the ILEC is responsible for originating and terminating the call. If the call local call is placed from an ILEC customer to a CLEC customer the ILEC is now only responsible to originate the call and the CLEC is responsible to terminate the call. When this happens the ILEC saves the cost of terminating the call. If the traffic between the two parties is equal then the savings is a wash and nether party pays the other for their origination/termination of the call. If, however, there are more call minutes of traffic that the ILEC is originating/terminating than the CLEC is originating/terminating, the CLEC will owe the ILEC. The reciprocal is true. The amount that is owed is the reciprocal compensation rate and varies between $0.002 - $0.01 a min.

If the parties believe that the traffic between them will be roughly equal then they may opt for "bill and keep." Under "bill and keep" there is no payment of local traffic at all. Many agreements start with bill and keep and then later change to reciprocal compensation after six months if the traffic flow is not even.

In the past the ILECs have done all they could to get reciprocal compensation as high as possible. They argued to the state public utilities commissions (PUCs) that it cost them a lot to terminate traffic. Before the Act, the only other people offering phone services were competitive access providers (CAPs) such as MFS. The CAPs would sell access to large businesses that mostly made outgoing calls, thus the CAPs would pay reciprocal compensation to the ILECs to terminate their calls.

This all changed after the Act when CLECs started selling access to ISPs. ISP traffic is all inbound and CLECs that provide access to ISPs are getting millions of dollars in reciprocal compensation payments every month. Now all of a sudden, the ILECs claim that it does not cost much to terminate traffic and should not need to pay CLECs as much as they do. When this did not work, the ILECs started saying that calls to ISPs were not local calls and thus they did not need to pay compensation. Their argument is that when you call an ISP, you are not calling the ISP, but actually some destination on the Internet. This is a very lame argument, but many people have are starting to believe this. In fact, the FCC ruled that they believe that calls to ISPs are interstate in nature, but that they would leave it up to the states to decide for now.

In any event this is not a solved issue. CLECs say that if ISP traffic is interstate in nature then they should get paid access charges just like any other long distance provider. The ILECs have no real argument on the definition of the type of traffic this is: whether it is local or interstate, something should be paid to the CLEC for terminating traffic because the ILEC saves when it does not need to terminate it. Most people believe that the FCC said ISP traffic was interstate in nature in order to get jurisdiction over it and the reciprocal compilation will be around for a long time. However, the reciprocal fee will more likely approximate $0.002 than $0.01.

Required Codes

There are many codes that need to be obtained when becoming a CLEC. The first code a CLEC will get is an operating company code (OCN). This 4-digit code uniquely identifies the CLEC. Before an OCN can be requested a CLEC must provide a copy or it's articles of incorporation as well as a copy of the PUC approval for the CLEC to provide local services. Once a CLEC has their OCN, they can get their point codes. A point is very much like an IP address for the SS7 network. A point code is need for every switch in the CLEC's network, most CLECs start with a block of 4 point codes. The CLEC will also need IAC, RAO, ECC, and CIC codes.

CLLI codes uniquely identify switches or locations in the CLECs network. They are in the form of 11 position code such as WASHDC12DC1. Normally a CLEC will require a minimum of one CLLI code for each switch in its network. A CLLI code will also be required for each point of interface with the ILEC's network.

NPA-NXXs blocks are the blocks of phone numbers from witch the CLEC assigns numbers to its customers. NPA-NXX blocks in the past have been handed out be the ILEC. There was a lot of concern with the ILEC providing blocks to competitors so the assignment was moved to the North American Numbering Plan Distraction currently managed by Lockheed Martin. A block will be required for every rate center that the CLECs require local numbers. It takes a minimum of 66 days to get an NPA-NXX block so this is not something the CLEC can wait until the last minute to get. OCN and CLLI codes are required before a CLEC can apply for an NPA-NXX block.

Hardware Selection

One of the most important stages of a CLEC besides the interconnection agreement is the hardware selection. A switch is the single most expensive capital investment for most CLECs, so care must be taken to make sure the correct switch is selected for the CLECs application.

Central Office Build-out

Unlike ISPs, CLECs need to maintain a very high reliability network of 99.999% uptime — often referred to as "5 nines." To accomplish this many CLECs build central offices to house their equipment.

Power Systems

The biggest and, many times, the most expensive system in a central office is the power system. Telecom equipment is normally powered off of a redundant -48 VDC power feed. Raw utility power, normally 480 VAC 3 Phase enters the central office and enters a transfer switch. The transfer switch automatically transfers load to a standby generator when utility power fails. The output of the transfer switch is connected to the high voltage distribution panel. In most locations the main panel will need to have a shunt trip, this is a push button that will interrupt power to the panel if an emergency panic button is pushed.

Main AC

DC

Circuits are run from the high voltage distribution panel to the rectifiers. Rectifiers convert the voltage to -48 VDC. The output of the rectifiers is paralleled with a battery string that is capable of providing as many Amps are required at -48 Volts for at lest 8 hours. This output then connects to distribution panel's circuits and is run to the individual racks in the central office. When utility power is available the load runs off the rectifiers. The rectifiers also keeps the batteries on a flute charge. When pore is interrupted the load is powered by the battery string. The nice thing about DC is that it can be paralleled very easily. A CLEC can start with a 600 Amp rectifier frame, but only install two or three 55 Amp rectifiers. When more power is needed you simply add rectifiers.

DC System

AC

Many CLECs also require 120 VAC to power servers and other non-telecom equipment. This equipment may not have the same uptime requirements as the DC side, but backup protection is often required. Circuits are run from the high voltage distribution panel to an AC UPS, typically with a runtime of only 10 to 15 minutes. Many times the UPS system will also have an external maintenance wraparound that will allow you to take the UPS out of the circuit without power interruption for maintenance. If a 480 VAC input is used a step-down transformer will be needed on the output.

AC System

HVAC

While heating may not be a big thing when building a central office, ventilation and air conditioning is. A central office can require more then 100 times the cooling of normal office space. Most CLECs keep their central offices around 68? - 70? with about 1? change of air per hour. Systems should be designed to be as redundant as possible.

Security

The hardware in a central office is very expensive and needs to be as secure as possible — not only to prevent loss, but also to prevent unauthorized access. Card key systems are typically deployed with key-in and key-out doors. Video surveillance is also often used to monitor doors and secure areas.

Fire

One of the worse things that can happen in a central offices is fire. Everything that is possible should be done to prevent fire, but if one starts there needs to be a way to put it out. In the past COs used Hylon, but because of ozone-damage concerns it is no longer legal in new construction. One common replacement is FM200; it can be deployed in much the same fashion as Hylon, but is environment friendly. Water based backup systems are also used as a fail save backup. If a water system is used it should be a dry pipe pre-action system with at least 2 zones; the sprinkler heads also should be high temp.

Racks

A rack system needs to be selected that will be used to hold the actual hardware. Most modern central offices use 19" racks for data equipment and 23" for Telco hardware. Overhead ladder rack or cable tray also should be selected to not only provide cable distribution path and cable management, but also to provide stability.

Services

There are many services that can be offered once one becomes a facilities-based CLEC. Some ISPs that become CLECs do so just to lower their cost and never really offer competitive local services. That is a shame, because once the CLEC has a switch it could be used to generate as much revenue as possible. This will be just a basic overview of services that can be offered as a CLEC; the ultimate services are of course up to the CLEC. The more unique the service, the harder it will be for a competitor to duplicate the service. Sit around a table and ask yourself what have you always wanted, see if it is financially feasible, and then find a way to offer the service.

Local Dial Tone

One of the most basic of services, local dial tone, is also the most common local service. Loop UNE prices vary greatly thought the US; they range from about $6 - $28 a month. In areas where the loop UNE price is still very expensive it may not appear that local dial tone is worth pursuing, but in many cases it can be a worth while investment. Once a CLEC provides a customer local phone service it essentially anchors the customer to the CLEC. A customer may change its long distance provider for a few cents, but very few would change their dial-tone provider with the same frequency. Bundling services with dial tone can prevent customer churn.

Local Features

Hand in hand with local dial tone are the local CLASS features such as Caller ID, Return Call, Voice Mail, etc. There is almost no cost to provide these services, so they can make quite a difference on the CLEC's bottom line. New CLECs are also looking to add to the standard set of CLASS features. By offering such services as Internet Calling Waiting and Internet Voice Mail, CLECs can grab market share by offering services customers want that the ILEC may not be willing to offer at the same price point.

Long Distance

The cost of a long distance call in the US has been dropping rapidly over the years; in fact there is a growing consensus that the residential customer will see unlimited long distance for around $20 a month within the next few years. Just because long distance services have been dropping over the years does not mean that it cannot be profitable. In fact, the lower prices of long distance are mainly because of lower network cost. The most popular way CLECs provide long distance is for them to buy dedicated services from a nationwide provider at around $0.02 - $0.05 a min and simply resell that to it's customers. As the volume increases, the circuits can be installed directly into high volume cities to further lower costs.

High Speed Data

The growth of the Internet has been unbelievable; it has grown faster then every other medium ever created. Rich content is available along with the necessary computer power to crunch it. The problem has been the speed of the connection. Modem speed has increased over the years, but still has not grown as fast as the computers or the applications. High-speed services such as ADSL can be a huge success.

Integration

The integration of services may not be looked at as a service, but in many cases it is just what the customers have been looking for. CLECs are offering voice, features, long distance and high-speed access, and they can do it over one connection and one monthly bill. This "bundling of services" can greatly reduce churn and offer the end customer the same services at much lower cost then they would see if they purchased them separately.

Collocation If a CLEC is going to build a central office, it should consider offering colocation services. Not only can this in itself be a revenue stream; it also attracts customers from your competitors that may not be able to offer colocation. If a CLEC does offer colocation, it should take measures to separate its own equipment from the general colocation area.